Assume the fair values of the investee’s net assets approximated the recorded book values of the in-vestee’s net assets, except the fair value of receivables and inventories is $10,000 higher than book value, the fair value of land is $5,000 lower than book value, the fair value of property and equipment is $20,000 higher than book value and the fair value of liabilities is $7,000 lower than book value. In addition, the transaction resulted in goodwill in the amount of $25,000. What is the balance in the pre-consolidation "investment in investee" account on the investor company’s books on January 1, 2019, immediately after the acquisition of the investee company voting common stock?

Assume that on January 1, 2013, an investor company acquired 100% of the outstanding voting common stock of an investee company. The following financial statement information is for the investor company and the investee company on January 1, 2013, prepared immediately before this transaction.

Book Values

Investor Investee

Receivables & inventories $100,000 $50,000

Land 200,000 100,000

Property & equipment 225,000 100,000

Total assets $525,000 $250,000

Liabilities $150,000 $80,000

Common stock ($2 par) 20,000 10,000

Additional paid-in capital 280,000 150,000

Retained earnings 75,000 10,000

Total liabilities & equity $525,000 $250,000

answer: $227000

Explanation:

Fair value of receivables and inventories = Book value + $10000

= 50000 + 10000 = $60000

Fair value of land = book value - $5000

= 100000 - 5000 = $95000

fair value of property and equipment = book value + $20000

= 100000 + 20000 = $120000

Fair value of liabilities = book value - $7000

= 80000 - 7000 = $73000

Good will transaction = $25000

The balance in the pre-consolidation account can be calculated below as

$(60000 + 95000 + 120000 + 25000 ) - $73000

= $300000 - $73000 = $227000 ( acquisition price )